If you’re a new small business owner or an entrepreneur trying to take your business to the next level, you might be considering taking out a loan or putting a balance on your credit card. Although in no way do I claim to be qualified to give financial advice (please note my disclaimer here), I’ve had experience with this and wanted to talk about the distinction I’ve noticed between everyday credit card debt and business credit card debt.
In my opinion, there’s a big difference between taking on credit card debt to purchase a depreciating asset versus investing in your business. If you go in to debt to buy an expensive car, big screen TV, fancy shoes, or any other number of items that will deprecate the very second the charge goes through, this kind of debt is likely to end up biting you in the ass as a new small business owner.
I call this “Debt with a capital ‘D’” because it’s just debt for the sake of having more stuff and the illusion of having more comfort. It’s the kind of debt that’s operating against you. It’s not growing your future nor is it likely adding much value to your life. Plus, you have to work that much harder to pay it off.
You see people with a flat screen TV in every room of their home (that they don’t even use), the latest iPhone, and shopping at Nordstrom every weekend who are having financial problems. They are the ones who need to watch out for this kind of “Debt”.
On the other hand, when you take on debt to invest in your business, you are investing in an appreciating asset and in your future. This kind of debt is working for you (when you are SMART about it) because it is giving you the leverage you need to grow your business and make more money down the road. So this debt has a greater potential to elevate your income instead of solely draining your bank account.
Think of it this way—imagine your small business is a fire. You start with a small fire and you steadily add fuel (money, time, energy) to it and grow it over time. When you take on Debt (with a capital ‘D’), all of a sudden, you have to give your fuel to another fire and you can’t work to grow your business. But when you take on (smart) debt to invest in growing your business, this is like adding more fuel to your business’s fire allowing it the potential to grow more rapidly than before.
Of course, as I mentioned, you have to be smart about any debt, but if you can, try to avoid Debt with a capital “D”. Also, from now on, start to ask yourself, “Will this purchase/item/debt make me more money down the road or just leave a hole in my bank account?” and make all your future financial decisions with intention and clarity.